Petrobras, PDVSA agree to terms of Abreu e Lima refinery

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Oct. 8 -- Brazil’s Petroleo Brasileiro SA (Petrobras) said it has resolved all outstanding issues with Venezuela’s Petroleos de Venezuela SA over development of the Abreu e Lima refinery planned for Suape, near Recife in northeastern Brazil.

Paulo Roberto Costa, Petrobras director for supply, said there were no more obstacles to construction of the refinery, and that there is no change in the proportion of investment required from either side, with Petrobras to supply 60% of the refinery's investment and PDVSA the remaining 40%.

However, PDVSA will have to pay Petrobras at least $400 million when it signs the final agreement for the Abreu e Lima refinery, according to a Petrobras spokesperson.

"This amount represents the obligations PDVSA has in this project calculated until December 2008. A consulting company is now reviewing all investments that both companies have to take responsibility for as from January, 2009," the spokesperson told BNAmericas.

"We expect the revised amount to be paid by cash immediately after the agreement is signed," the spokesperson added.

Asked if Brazil’s President Luis Inacio Lula da Silva would sign a definitive agreement with Venezuela’s President Hugo Chavez on an upcoming state visit, Petrobras Pres. Jose Sergio Gabrielli said he didn't know. Lula will visit Caracas on Oct. 17-18, according to Brazil's foreign ministry.

Meanwhile, Costa said there had been several obstacles holding up the refinery agreement, including the rising cost of the project, which has escalated to about $12 billion from a preliminary estimate of $4.06 billion.

Petrobras said the increased cost of the joint venture was normal for such projects because pricing always increases once more detailed plans are developed. Petrobras also said that $2 billion of the cost increase came from the appreciation of Brazil's currency.

Other areas of disagreement came over rights to purchase products from the refinery and Venezuela's desire for higher-than-market prices for the heavy crude it plans to supply to the refinery.

PDVSA and Petrobras are each expected to provide 50% of the oil needed for the 230,000-b/d refinery, which saw the start of construction, mostly land-leveling, in 2007 (OGJ, Sept. 10, 2007, Newsletter).

Contact Watkins at hippalus@yahoo.com.

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